Ethics@Work: Investment in human capital pays off

University of Haifa study: Clear relationship between a high level of trust and profits.

By ASHER MEIR

July 13, 2006 21:12

4 minute read.

employees 88.
(photo credit: )

A recent article in the Post summarized a University of Haifa study which found that investing in workers and empowering them leads to improved business performance.
Researcher Shai Tzafrir found "a clear relationship between a high level of trust and profits" in Israeli companies. The same article cited consultant Ofer Arad as saying that "while there was a growing awareness in Israel to invest more in employees, the local market was still lagging behind developed countries."
In a number of previous articles, I bemoaned the unusually low level of wages in Israel and suggested that a key cause was inadequate training and empowerment of workers. This study supports my thesis, namely that such steps work, and yet are not being taken. The question is, why not? The article merely cites "cultural and financial issues," adding that Israelis think "that they can do everything." I would like to elaborate on these cultural and financial issues in this column.
Basically, I feel that there are a few vicious circles of expectations and norms. Israeli culture is still in many ways a consensus and collective driven one.
My impression is that the Israeli worker is in many ways complacent. Once in a new collective of a labor union the worker is capable of making insistent (often exaggerated) demands, but the isolated, individual worker is not as demanding as his or her American counterpart. This kind of complacency can pay off - for the employer, that is. The worker, however, loses out big time.
Many studies have been done to explain the large pay gap between men and women of seemingly similar skills. One factor discovered was simply that women ask for less. According to a study by Linda Babcock of Carnegie Mellon University, men are about four times as likely to negotiate their starting salary than women. (In some situations the gap is even larger.) I know of no studies, but my subjective impression is that Israelis negotiate far less than Americans.
The Israeli worker is also less mobile, in both the geographic and workplace senses. A number of scholars have told me that Israelis are far less likely than Americans to change residences or commute in order to find a better job, and a recently published study showed that they value workplace stability more than Americans.
It may be that the army plays a role in all this.
Most Israelis start their working career in a framework where they are expected to be highly motivated and work hard for the collective in return for token recompense. Employers, in turn, may be used to norms of autocratic rule.
All these qualities can make the worker easy prey for the employer. The less mobile worker has less bargaining leverage, and the less demanding worker is less able to exploit the leverage he or she has. It also makes it more difficult to break out of the mold. In other business cultures, lots of people negotiate their working conditions, so it's a cinch to tell one reticent individual that this is a good route to success. But in an environment where negotiations are comparatively unusual, an applicant or worker who demands what he or she is worth may be branded, unfairly, as a troublemaker.
There's a vicious circle involved, but I'm convinced that even given the current environment, which I believe works against the demanding applicant, it still pays for a work applicant to show a little patience and be willing to make demands. It's better to wait an extra two months to find the right job with better pay, better conditions and more responsibility.
Another vicious circle has to do with work tenure.
Norms of long-term employment tend to be self-reinforcing. If the employer believes that the worker will be around for many years, it will make it worth his or her while to invest in training. This, in turn, creates a highly trained employee the firm is reluctant to let go.
Conversely, when "hit and run" hiring is the norm, the employer is afraid that if they invest in worker training the worker will soon just pick up and go, taking valuable skills elsewhere, perhaps even to a competitor. As a result, the worker doesn't cultivate any unique skills and, in a self-fulfilling prophecy, is motivated or compelled to move on after a short stint.
So what is the solution? Everyone has to wise up a bit. A good negotiator should be able to persuade the boss of the value of a motivated, skilled and committed employee without sounding like a troublemaker. A good boss should be aware that an empowered worker is a more productive employee, leading, as the recent study shows, to a better bottom line.
As far as work tenure goes, many economists favor charging the employee for on-the-job training if he or she quits before the employer obtains the benefit. Theoretically, I agree with this advice at least if the training is something that can be used in other workplaces as well, and I know that some Israeli employers use this method. However, my impression is that these charges can be inflated and abused. The best way to keep a good worker is to have a good work environment and provide a promising future to hires, thus motivating them to stay on.
Providing workers with more training and more responsibility is good ethics and good business, even in Israel. It's true that the Israeli environment presents some discouraging structural obstacles to such empowerment, but with a little foresight and fortitude I believe that both workers and employers can overcome the obstacles and become pioneers of a high skill, high pay work force.
ethics-at-work@besr.orgThe writer is research director at the Business Ethics Center of Jerusalem (www.besr.org), an independent institute in The Jerusalem College of Technology. He also is a rabbi.

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